ITAT Mumbai: Cash Deposit Addition Struck Down, Telescoping Benefit Granted on Commission Income — Empower India Limited vs ACIT
Background and Context
The Income Tax Appellate Tribunal (ITAT), Mumbai, recently delivered a significant ruling in the case of Empower India Limited Vs ACIT for Assessment Year 2017-18. The appeal arose from an order passed by the Commissioner of Income Tax (Appeals)-48, Mumbai, dated 08.08.2025, wherein the CIT(A) had upheld additions made by the Assessing Officer (AO) on two critical counts — commission income assessed on account of alleged bogus turnover and cash deposits made during the demonetization period treated as unexplained money under Section 69A of the Income Tax Act, 1961.
The Tribunal's ruling touches upon several important principles, including the doctrine of telescoping of income already declared, the evidentiary standard required to sustain demonetization-related additions, and the correct base figure to be adopted while computing commission income on bogus turnover.
Facts of the Case
Empower India Limited filed its return of income for Assessment Year 2017-18 declaring total income of Rs. 24,68,980/-. The case was picked up for scrutiny, and notices under Section 143(2) and Section 142(1) of the Income Tax Act, 1961 were duly issued.
Search Operations and Group Connections
The AO placed on record that Empower India Limited was part of the business group controlled by Shri Shirish C. Shah, in whose case a search operation under Section 132 of the Income Tax Act, 1961 had been carried out back in 2013. The search had unearthed that Shri Shirish C. Shah was the principal architect behind a large-scale scheme of providing bogus accommodation entries, which included:
- Fictitious long-term capital gains
- Inflated share capital with disproportionately large share premiums
- Circular turnover entries
- Sham loan transactions
The AO held that Empower India Limited was one of the several entities directly or indirectly under the control of Shri Shirish C. Shah and was being used as a conduit to generate such accommodation entries.
AO's Treatment of Business Transactions
Based on findings from earlier block assessments involving the group, the AO concluded that the assessee was not conducting any genuine commercial activity during the year. Instead, the entire business was characterized as circular in nature, designed to create an appearance of legitimate trade without any underlying economic substance.
Consequently, the AO assessed commission income at 1% on:
- Sales made to non-group parties — Ms. Jigar Mercentile Pvt. Ltd. and Milap Trading Pvt. Ltd. — aggregating to Rs. 61,37,65,621/-
- Fresh investments made during the year amounting to Rs. 4,49,64,300/-
This resulted in commission income of Rs. 65,87,299/- being assessed (being 1% of Rs. 65,87,29,921/-).
Critical Issue Noted by ITAT: The AO erroneously adopted a sales figure of Rs. 61,37,65,621/- as the turnover base for computing commission income, instead of the correct and total reported turnover figure of Rs. 90,36,25,872/-.
Demonetization Cash Deposit Addition
Over and above the commission income addition, the AO made a further addition of Rs. 29,44,500/- under Section 69A of the Income Tax Act, 1961 on account of cash deposits made by the assessee during the demonetization period. The AO's position was that:
- The assessee had failed to demonstrate a correlation between prior cash withdrawals and the subsequent cash deposits during demonetization
- No satisfactory details were placed on record during assessment proceedings
- The cash deposits therefore constituted unexplained money in the hands of the assessee